By Samantha Vadas and Adam Jourdan
SHENZHEN/SHANGHAI, China, May 4 (Reuters) – At its high-tech laboratories in the Chinese manufacturing hub of Shenzhen, Beike Biotechnology is developing medical robots that could help treat cancer. It has big plans to export these to markets like the United States.
Those plans are now under threat. The robots, which help develop cell cultures used in stem cell therapies, are on a sprawling list of products threatened with steep U.S. tariffs amid a simmering trade stand-off between Washington and Beijing.
The company is already factoring U.S. tariffs into its plans and order pipeline for next year and has tasked its sales teams with finding new markets to make up an expected shortfall from the United States.
Beike, a domestic leader in stem cell technology with government support and long-standing ties overseas, illustrates the stakes for China Inc after Washington and Beijing kicked off trade talks on Thursday.
Led by U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He, the talks are aimed at defusing tensions between the world’s top two economies and avert a full-blow trade war that could rattle companies in the United States and China.
There are few expectations that the two sides will resolve their issues at the talks, which continued on Friday, amid signs that frictions are growing. China’s major ports of entry have increased checks on fresh fruit imports from the United States, five Chinese industry sources told Reuters.
In the meantime, manufacturers are watching developments nervously.
“The trade sanctions between China and the U.S. will certainly have a huge impact on us,” Hu Xiang, Beike’s founder and chairman, said at the firm’s Shenzhen headquarters.
“We are developing a completely automated cell culture robot, which comes within the scope of the tariffs,” he said. He added that the company had received significant purchase intent orders from U.S. buyers that could be hit hard.
The machines have various robotic parts which move the cell cultures and keep them in a controlled environment as they grow.
The United States is threatening to slap tariffs of 25 percent on over 1,300 Chinese products, including medical devices, robots and sewing machines, valued at around $50 billion. That follows levies on aluminium and steel.
The U.S. tariffs could go into effect in June following the completion of a 60-day consultation period. China has threatened retaliation in equal measure, including tariffs on major U.S. exports like soybeans and aircraft.
EXPANSION PLANS
Beike is not alone. Interviews around China with business leaders in medical devices, apparel, manufacturing, steel products, printing and others underscore how broadly the trade war threat is being felt.
Some are already seeing tangible impacts and are shifting sales elsewhere or scrapping factory expansion plans as U.S. orders drop. Others are grappling with the uncertain outlook the trade war threat brings.
China’s state media said on Friday that reaching a deal to avert a trade war would not be easy and “failure would herald a slugfest of tariffs that would leave global trade reeling”.
Other companies that could be hit include the likes of Hebei Huayang Steel Pipe Co Ltd, a manufacturer in the city of Cangzhou in eastern Hebei province that has seen U.S. orders dry up over the last few months as trade tensions have risen.
The firm makes metal pipes used for transporting things like oil, gas or water which it said normally take three months to produce and ship to clients.
U.S. buyers were worried about paying extra tariffs if the policy came into effect, Steven Yue, a sales manager at the Hebei-based firm, said at the company’s manufacturing facility.
“We were planning to expand in the United States this year,” he said. Yue added that the company would now look to adjust its plans for the U.S. market in the expectation that a new tariff policy would come into effect.
Yue said U.S. buyers would still need to buy the products from somewhere, and there would likely be more trans-shipments, whereby products avoid tariffs by being sold to middlemen in a third country before being shipped to the United States.
In the southern city of Dongguan, another firm, Wagon International Co Ltd, is seeing a weaker performance from U.S. sales of its metal accessories for luxury brands and its soccer merchandise that it makes as an authorized partner of FIFA – although it’s not all trade related.
“Because they didn’t get into the World Cup, sales forecasts there are about 60-70 percent lower than what we had estimated,” Perry Chou, Wagon’s vice president told Reuters, referring to the United States. He added that trade frictions would however hit others areas of the firm’s business.
“GOING TO WAR”
In the port city of Ningbo, Joan Lu is anxious about rising pressures on the price of the fabric printers her company sells – 40 percent of which go to the U.S. market – as clients look for discounts to offset higher import levies.
“The whole industry is worried,” Lu said. “Future orders from clients will certainly come under pricing pressure, that’s for sure.” Lu added: “It’s not just a little extra – it’s 25 percent. If we’re talking a $10,000 deal then you’d be adding $2,500.”
Lu said her company would not abandon the U.S. market, “but we are putting all our energy into developing other markets”.
The United States is China’s largest trading partner with $506 billion worth of U.S. imports from the country last year, according to U.S. trade data. A large trade surplus with the United States is partly behind recent tensions.
In Yiwu – a sprawling city known for exporting huge volumes of gadgets, toys and Christmas decorations – merchants were more circumspect about the impact, but were keeping close tabs on developments.
“We’ve been following the news on our phones,” said Yang Dingju, a manager at Zhejiang Bote Sewing Machine Co Ltd, as he peeled an orange inside his store in a cavernous trading hall.
He added, however, that most of his buyers were in less developed markets like the Middle East and Africa, which would dull any impact.
Chen Haiying, who worked for another Yiwu firm selling sewing scissors and sewing machine parts, was at a loss as to why sewing machines were on the U.S. list, but said a full-blown trade war would have a wider ripple effect.
“If we really go to war with the United States then it will affect everyone,” he said. (Reporting by Samantha Vadas in SHENZHEN, Brenda Goh in YIWU, Muyu Xu in CANGZHOU, Adam Jourdan in SHANGHAI, Cate Cadell in BEIJING and Jiang Xihao in DONGGUAN; Writing by Adam Jourdan; Editing by Philip McClellan)
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